Multifamily Owners Focus on Green Benchmarking

Energy efficiency in the multifamily sector could be improved by about 30 percent nationwide by the end of the next decade according to “U.S. Multifamily Energy Efficiency Potential by 2020,” a report prepared by the Folsom, Calif.-based Benningfield Group, an energy consulting firm.

The report estimates that the achievable potential by 2020 is over 51,000 gigawatt-hours of electricity and 2,800 million therms of natural gas, with the potential for nearly $9 billion in annual savings.

In order to improve their buildings’ performance, multifamily owners must first know how much energy their portfolios consume. To do so, they can benchmark their buildings against others in the portfolio to determine which properties have the greatest potential for improvements.

Furthermore, “If you’re constantly assessing the energy performance of your property, you can identify deficiencies and/or when there is a failure in either a system component or operations and maintenance,” points out Paula Cino, director of energy and environment at the National Multi Housing Council (NMHC).

But while benchmarking a building is important in determining its energy consumption, the multifamily industry has been unable to take as large a stride in the process as other commercial real estate sectors have.

Other building types can, for example, achieve an Energy Star rating once they benchmark their buildings using the EPA’s (U.S. Environmental Protection Agency) Portfolio Manager, but multifamily buildings currently cannot. (The Energy Star Multifamily High-Rise effort is still in its pilot phase. The EPA is currently evaluating information obtained from the pilot and expects to launch a national program for multifamily buildings in 2011.)

“The people who collected data for CBECS (Commercial Buildings Energy Consumption Survey) made it very clear that … they had to make some estimates about the energy costs” for multifamily buildings, according to Nehemiah Stone, principal, Benningfield Group Inc. and author of the firm’s report.

While Stone believes that benchmarking will one day be useful for multi-housing buildings, he notes, “people have not paid enough attention to multifamily buildings that anybody can have confidence that we [currently] have data that is reliable enough to do it.”

Multifamily challenges

While it makes sense for multifamily owners to identify “which buildings have the most need for their investment in energy efficiency,” Stone points out that benchmarking is not useful for trying to draw any real conclusions about this building type.

“It’s a lot easier to understand what is being represented in the energy bills of office buildings. You know, for example, when you deal with the tenant-owned, single-tenant office buildings, [that] you are going to capture all the bills,” points out Stone. “You don’t have to split between the owner’s energy bills and the tenants’ energy bills,” which is one of the biggest challenges in multifamily buildings.

Owners who submeter their residents’ utility usage may incorporate a lease clause to provide management with access to resident utility bills. “Owners want to get this [information] to be able to say to the next renter: ‘This apartment used this amount of electricity in the last 12 months,’” points out Andrew Padian, vice president for energy initiatives at the Community Preservation Corporation (CPC).

But benchmarking should be capturing consumption per square foot, broken down by every type of fuel, asserts Padian. While most building types can provide enough detailed information to result in an accurate performance benchmark, Portfolio Manager does not require much  detail for multifamily developments.

Office building owners, for example, are required to input into the database the number of workers and computers on-site. Multi-housing owners, however, are required only to input gross square footage; there is no discussion of on-site appliances or whether laundry is in-unit, for example, making it difficult to determine what drives consumption.

EnergyScoreCards is an online software-as-a-service benchmarking tool specifically geared toward multifamily and other multi-tenant properties. “We don’t need 100 percent of tenants to give [their] utility bills for us to be able to get a sense of how tenants use energy,” asserts Jeffrey Perlman, LEED AP, co-founder & CEO of EnergyScoreCards and president of Bright Power Inc.

The system, for which the creators invented a so-called taxonomy of multifamily building types, compares a building to others of the same utility bill payment type, explains Perlman, providing an “owner energy index” grade—A through D—as well as separate grades for a building’s cooling index, heating index, non-seasonal electric index, non-seasonal fossil fuel index and water index.

Another challenge to achieving a data set is the difference between multifamily communities, i.e. low-rise versus high-rise, affordable versus market-rate, as well as geographic differences. There are also big differences between buildings with central systems versus those with individual systems.

“You need to be able to have that sort of granularity in the answer when you’re looking at benchmarking your building,” says Stone. “It’s completely apples and oranges.”

While EnergyScoreCards benchmarks buildings based on the owner’s energy usage, it can also benchmark total energy consumption in the property—including residents’ usage. And in situations where the company does not receive resident bills, then only the parts of the building where energy data is available are benchmarked.

Each grade in EnergyScoreCards is calculated based upon a comparison to an appropriate set of buildings for that metric. Thus, the tool—which currently has about 1,200 multifamily properties nationwide in its database, with contracts pending for close to 500 more—may compare water consumption by taking into account who is living in the building, explains Perlman, as opposed to heating metrics, for example, in which buildings are compared based on construction type.

“This is where we differ from Portfolio Manager,” Perlman points out. “We take the utility bills and we run a weather-based analysis on them, which enables us to differentiate what portions of the bills are used for heating and what portion is used for cooling,” he explains. “Each grade is calculated based on a comparable set of buildings, and the set of buildings you’re being compared to varies depending on which metric we’re calculating.”

Disclosure requirements

In recent months, many states and cities have passed benchmarking and disclosure requirements. Last year, for example, New York City Mayor Michael Bloomberg passed the Greener, Greater Buildings Plan, which includes a benchmarking bill requiring all owners of private buildings greater than 50,000 square feet (or public buildings greater than 10,000 square feet) to benchmark energy usage. This year, Seattle Mayor Mike McGinn expanded the  Efficiency First bill by approving the Energy Disclosure Ordinance, which requires that multifamily and large commercial owners benchmark and disclose energy use information and ratings to prospective residents, buyers and lenders on an annual basis.

Benchmarking mandates can be a problem for the multifamily sector, though, particularly when the legislation also requires energy use disclosure, notes Cino. It “raises a red flag because the tools available to multifamily owners are limited, and how useful that information would be to an incoming resident or a prospective resident is up for grabs.”

While most commercial owners benchmark their buildings in order to receive an Energy Star rating, there is no such incentive for multifamily owners.  “Until we build those data sets, we’re limited in our ability, moving forward, to either establish that rating or, from the disclosure perspective, we’re limited in being able to tell people what that data means to them,” points out Cino.

“It’s a catch-22,” she adds. “Owners question why they should use Energy Star’s Portfolio Manager if they can’t get a rating and if it’s not a particularly good tool for them, but the EPA tells us they can’t establish a rating and they can’t perfect the tool until they populate the data.”

If a manager can only benchmark the building’s common area use, for example, he can hardly tell a prospective resident what to expect his electricity bills to be. “You don’t want to be selling your building on the fact that [you] have a very good benchmarking rating—that’s not going to translate into any benefit for the resident” if that rating is based solely on common area usage, points out Cino. “The worst-case scenario is if you’re painting an inaccurate picture of your anticipated energy use or energy bills,” which an energy disclosure rating on a multifamily building would likely do.

Perlman points out that the financing sector has shown some great interest in benchmarking results. “The organizations that lend into multifamily properties are interested in making sure that controllable costs can be controlled. They’re also really interested in figuring out ways to lend money into apartment buildings so that they can green themselves. In order to do that, they need to have some sense of the performance of the building and they need a way to make sure that the energy performance improves when they actually make these loans.”

NMHC, meanwhile, is focusing on developing better benchmarking tools and educating owners about what is available. Cino notes, “The onus really is on our end and on the end of individual owners and managers to get people to understand the value of these tools and the value of putting your information into the tool, even if it’s not going to yield a rating for you.”

Improving performance

According to the EPA, reducing energy use by 15 percent in a master-metered apartment community of 250 units can increase asset value by $1 million. In a submetered community, asset value may increase by $200,000 annually.

Even if an owner pays only the common area utility bills, benchmarking can still prove to be a valuable process. The EPA reports that many of its Energy Star Multifamily partners have realized upwards of 10 percent savings in common area space through no- and low-cost energy efficiency measures. Some suggestions include:

• Replacing all incandescent lights with compact fluorescent bulbs. According to the EPA, replacing one 60-watt incandescent bulb with a 13‐watt CFL will save $56 in energy costs over its lifetime. CFLs also last 10 times longer.
• Installing programmable thermostats in common areas. Setting back temperatures 10‐15 degrees Fahrenheit for eight hours per night reduces heating and cooling costs by 10 percent, according to the EPA.
• Better managing of vacant units by turning heating and cooling to a minimal temperature setting, adjusting refrigerators and freezers to their warmest settings and turning off water heaters. Also review vacant unit bills to identify unnecessary energy use, and walk through vacant units periodically to ensure lights and thermostats are off.
• Conducting preventative maintenance on heating and cooling equipment, checking and replacing filters regularly, cleaning evaporator and condenser coils, dampers, air ducts, blower units and motors.
• Installing weatherstripping on doors and windows.